Good morning, and thank you for that kind introduction.
Can I thank Pauline Vamos [ASFA Chair and CEO] for inviting me to address this ASFA 2010 National Conference.
Well, if there is anywhere in Australia at this moment that we might tag 'superannuation boot camp' – this is probably it folks.
When it comes to superannuation and 'getting it' – this room absolutely 'gets it'.
$290 million per day goes into the superannuation pool in Australia. That's $2 billion each week.
What I want to speak to you about today is how we can make a good thing even better.
We in Government do very much appreciate the commitment and professionalism you bring to informing the policy debate and raising public awareness of superannuation issues.
What we need to do now is make sure others who aren't in this room 'get it' - across Adelaide, across South Australia, across the entire country.
Work of previous two ministers
Ladies and gentlemen I have to say that I'm proud to continue a long Labor tradition of championing the cause of superannuation for all working Australians. Better superannuation for working Australians is what we stand for.
For decades now, Australian Labor – both in Government and in Opposition - has understood the value of superannuation and promoted the benefits it brings to individuals, to business and industry and to the national economy at large.
From helping modest working Australians have a comfortable and secure retirement... to encouraging the wealth management industry to grow and develop more jobs and expertise... to advancing the long-term effects of superannuation on national savings and the budget bottom line.
The story of superannuation is tightly bound up with the story of modern Labor's economic vision and reform.
So as the most recent responsible Minister, I do want to pay tribute to former Prime Minister Paul Keating and former ACTU Secretary Bill Kelty for their foresight two and a half decades ago.
The grand bargain they helped deliver - both between and for Australian workers, employers and taxpayers holds up as a powerful economic lesson for us today.
The prescience of this decision by the Keating government should not be underestimated. It means that from the late 2020s onward, workers will be better self funded in retirement.
So in this regard Australia is well placed in comparison with other nations.
But this still leaves this nation with a largely unfunded retirement liability over the next decade and a half as the first wave baby boomers retire without sufficient superannuation funds because most of their working lives were prior to 1993. We need to support these people's retirement experience.
And while recognising historical contribution, I would also like to acknowledge the important work of my immediate predecessors, Chris Bowen and Nick Sherry.
Chris Bowen was a strong supporter of the Cooper Review.
As you know that review has become the blueprint for advancing Australia's pension system into the future, and we are implementing many of Cooper's recommendations.
I will talk more about our super reform agenda in a few minutes.
Nick Sherry also brought his extensive experience in pension systems to his roles as Minister for Superannuation and Corporate Law, and later Assistant Treasurer.
Nick actually chaired the Senate Select Committee on Superannuation in the Hawke and Keating Governments, and later served for six years as Deputy Chair of the Senate Select Committee on Superannuation and Financial Services.
Their efforts and service has been very substantial. However, superannuation today is an unfinished symphony.
And as I speak with you at this gathering about how the finishing touches are to be laid out, I hope we can all keep in tune to the rhythms of consensus sung by those who've gone before us.
Superannuation is, of course, very big business in Australia.
As at June 2010, over $1.2 trillion was invested in superannuation in over 420,000 entities. That figure is roughly equivalent to our GDP, and represents a nearly seven-fold increase since 1993.
The superannuation industry is also a major employer.
According to the Johnson Report, which examined how we can best build Australia as a financial centre, the Report found that by 2009 insurance and superannuation directly accounted for a total of 80,000 Australian jobs.
Indirectly, the sector employed a substantially larger number of people, through outsourced legal, accounting, technology, administration, processing and other services.
Value of super to the economy
I said that the Australian people have $1.2 trillion invested in superannuation. Now that's today.
The figure is estimated to increase to $6.2 trillion by 2036, including $550 billion directly from the Government's superannuation reforms.
This massive, rapidly-growing pool of funds is ever at the disposal of our broader economy and continues to be a great enabler of Australian enterprise.
Our multi-trillion dollar savings pool is a great business enabler because it ensures Aussie companies can rely less on overseas capital. And instead more on our long-term domestic funding sources – which are relatively secure and steady.
As the banks have been so keen to remind us in recent weeks - sometimes I admit as they go about trying to justify some poorly timed and unreasonable behaviour - approximately 30 cents in every dollar that they lend here in Australia needs to be borrowed from the more volatile international markets.
As we journey forward, with a bigger superannuation pool, Australian banks and business should be required to call less and less on overseas money markets for raising new capital.
Our already strong degree of financial self reliance is one of the reasons why Australia weathered the global financial crisis so well.
And the post-GFC growth of funds under management continues to drive a significant and sophisticated wealth management industry in Australia.
Intergenerational priority
We all understand, in some way, the demographic challenges facing Australia's future. The bottom line is we are living longer.
By 2050 there will be 27 working aged people for every 10 people aged 65 and over, compared to 50 in every 10 today.
But as I have begun to settle into my new role... as I've thought more and more about the human dimension in which superannuation reform presents itself – more and more have I become dissatisfied with the negative tone that seems to accompany this discussion of demographic challenge.
Because the evident reality is that we should be celebrating the fact that we're living longer. This is the great endowment of the 21st Century. An enduring gift of the social reforms brought about by Labor Governments.
Next year we will all participate in the national census – and a glass ceiling that will almost certainly be broken here is that we'll find this wonderful country of ours is home to more than 4,000 centenarians.
This is terrific. Longer life is a wonderful thing. It means tree changers, sea changers, happy grey nomads investing in rural and regional economies.
It's grandmothers spending more time chatting with their granddaughters and poppas taking their kids' kids to Auskick or the war memorial.
But what does longer life mean for us, not just as individuals and families, but as a society?
It used to be the case that we'd leave school in our teens, work for 40 to 50 years and then be in retirement for about 10, before departing this world.
Now we might be in education until 20 to 25 years of age, work for about 35 years, and then we have a post-work life of say 20 or even 30 years.
So the challenge, if we choose to keep calling it that – is evident.
How do we ensure that life after work is secure, happy and comfortable as it ought to be?
And how do we ensure that in a compassionate welfare state like ours, how do we ensure that we keep our fiscal heads above rising water.
More savings, through higher compulsory superannuation contributions, is a very big part of the answer.
But these extra years of life means that we need to be smarter and more disciplined about saving and managing funds for retirement.
As life expectancy grows so too does government liability in terms of caring for the aged. Superannuation mitigates this risk.
I thought the Australian Financial Review's highly regarded commentator Brian Toohey made an interesting point on the ABC Insiders couch last Sunday morning.
The nub of Brian's point was that it's a bit of a tough ask of Government to tell hard working Australians that they have to forgo some of their wages now and put it away for later.
Especially when cost of living pressures are substantial and the need to balance the family budget this month, not in 30 years time, is fore of mind and kitchen table discussion. I'm glad Brian made the point, because it's a frequently cited objection. But here's my answer.
If you are negotiating your next pay rise, do you want to in effect hand over the extra money to the Reserve Bank (or indeed to a cynical CBA) in higher mortgage interest repayments? Do you want to give it to Coles or Woolies or Caltex in higher grocery or petrol prices? Or to Qantas or Virgin in inflating holiday prices?
Or instead, do you want to stick it away in a superannuation nest egg – and benefit as you do from concessional tax treatment.
In effect why not take a long bet that you're going to live a long time?
Because the reality is that's really the choice.
And while I have heartfelt empathy with the millions of families around Australia who are facing cost of living pressures – the last thing I want to see is there wages eaten up by inflation.
We all need to be seized of this: superannuation is a tremendous low inflation instrument. And the savings pool created by super is a fuel for economic growth. Superannuation twice blesses our economy.
It's the gift that keeps on giving.
At the time of the Superannuation Guarantee system's introduction, it was expected that the provision of wage increases through superannuation would provide significant benefits to employers, as well as employees.
Employers would not incur the additional on-costs associated with a direct cash wage increase, such as workers' compensation and payroll tax.
Between 1 July 1992 and 30 June 2003 when the Superannuation Guarantee was lifted to 9 percent:
- The Australian economy grew strongly – GDP growth averaged 3.9% p.a.
- Unemployment fell from 11% to 6.1%.
- Labour productivity grew very strongly, well above its 30 year average, at 2.2% p.a.
- Unit labour costs fell over the period by 4.3%.
- Real wages grew.
- Australian business profitability grew by 6.1% p.a. and profits rose as a percentage of GDP.
So the evidence is already there for why increasing the SG rate is very worthwhile.
And while growing our economy in the immediate term it also prepares us for the longer term growing pressure that will be put on the Government's bottom line through higher pension and healthcare expenditures.
I've mentioned the demographic trends. In 1960 a male could expect to live another 12 years after reaching age 65. Today, a 65-year-old man can expect to live for another 19 years. By 2050, a 65-year-old man can expect to live for another 24 years.
In 1960, a woman could expect to live another 16 years after celebrating her 65th birthday. Today's 65-year old woman can expect to live for another 22 years. In 2050 they can expect to live for another 26 years.
The number of 65 and overs is projected to grow from three million in 2010 to 8.1 million by 2050.
The first baby boomer ever invented, born in 1946, turns 65 next year.
This means that we are passing out of the long baby boom and into the baby bust. This is an important transition from a sheer numbers point of view. There are, according to some sources, 4.5 million baby boomers in Australia who are right now preparing to move into the retirement space now occupied by 2.5 million pre-boomers (born over the 15 years to the end of WWII).
But the issues go well beyond numbers. Baby Boomers will simply expect more in retirement than preceding generations (who, coming from the Depression and war eras, were predisposed towards frugality.
I somehow suspect that the Boomers will be looking for a different experience in retirement. And they will look to governments, and the taxpayers of the day, to fund these expectations. This is why a strong, robust and growing superannuation base it vital to this nation's short term outlook.
The 2010 Intergenerational Report highlights the impact of these trends on Government spending.
For example, if spending on ageing and health stay at current levels, total government spending will increase from 22.6 per cent of GDP in 2015, to 27.1 per cent by 2050. That 4.5 per cent jump in 35 years represents a big slice of our budget.
Health costs alone will account for more than two-thirds of the projected increase in spending.
I'd add that the issue with boomers in the future will not be just around their numbers it will be around their rampant expectations: if they feel sick they'll want a CAT scan and a blood test, all paid for by Medicare.
While these statistics pose significant challenges for the Government, Australia will be far better equipped to meet them if we have adequate private retirement savings.
I've emphasised the importance of going to 12 percent to meet this adequacy factor – and let me be crystal clear, delivering 12 percent cannot be taken for granted.
Unless we get a minimum of 75 votes in the national Parliament this vital reform will remain a goal rather than a reality.
That's why we need to build a consensus around our superannuation reforms – across the workplace, across the community, across party and political lines.
On 24 October, I released research, commissioned by the Government and undertaken by independent market research company Colmar Brunton, on community values and attitudes towards super.
This was a significant piece of research, involving 16 focus groups, 52 in-depth interviews and over 2400 telephone interviews of consumers, employers and stakeholders.
The research found universal concern that a 9 percent contribution is unlikely to be enough to allow people adequate funds for retirement.
This finding underscores the need to boost the Superannuation Guarantee to 12 per cent.
These public attitudes are backed by the results of a survey recently commissioned by ASFA.
That survey showed that almost 90 percent of working Australians believe that the Government has made a good decision in increasing the Superannuation Guarantee from 9 to 12 percent.
Now I don't imagine I have to do much convincing in this room of the merits of 12 percent – you all get 'the argument for' as astutely as anyone.
There are however some further reforms, arising as they do from the Cooper Review, that the Government does also need you to get behind. And they involve a certain degree of quid pro quo.
Superannuation reforms (SuperStream)
We have committed to work with your industry to streamline the back office functions, through an initiative called SuperStream.
The super industry processes an estimated 100 million transactions a year at a total cost of $3.5 billion. So each transaction costs around $35.
Contributing to this inefficiency, each working Australian has, on average, three superannuation accounts.
Clearly, we can make improvements.
An important first step is making better use of Tax File Numbers to locate lost accounts and help members consolidate and switch accounts.
The Government has made some early progress in this area. From 1 July 2011, an individual's Tax File Number will be the primary identifier of member accounts. Of course, this will be subject to strict conditions to ensure privacy and security of information.
Superannuation reforms (MySuper)
In another important reform, the Government will introduce a simple, cost-effective super product called "MySuper" from 1 July 2013.
MySuper is designed to provide a diversified investment portfolio, suitable for the vast majority of Australian workers who do not actively choose an option for their superannuation savings, but rely on their employer to choose a default fund for them.
I firmly believe that if you're not actively involved in your super fund, you shouldn't be charged fees as though you are.
MySuper will replace existing default funds.
Only those funds whose default product meets the MySuper standards will be able to operate as a default fund.
MySuper products will not be allowed to charge certain types of fees, including entry fees, hidden fees, or commissions to financial advisers.
MySuper products will also be subject to more transparent and comparable reporting standards.
MySuper will lift standards that apply to default funds, while maintaining freedom of choice for those members who do wish to take an active role in managing their superannuation.
I would emphasise that MySuper products will not be compulsory, either for funds or for members.
Superannuation funds will still be able to offer alternative products and will not be required to offer a MySuper product.
We will work together with industry, consumer and employer groups to minimise compliance costs.
We will also talk with the industry about implementation and transitional issues.
Treasury estimates that about 4.5 million Australians will hold MySuper accounts when fully implemented.
The combined effects of the MySuper and SuperStream proposals will make a substantial difference to workers.
For example, a 30-year old on average weekly earnings moving to a lower fee account could see an increase in their end benefit after a 37-year career of about $40,000, or 7 percent. That's equivalent to almost a 1 percent increase in Superannuation Guarantee contributions.
We estimate that in the long run, these reforms will save members $2.7 billion a year in fees. That's a lot of money, however you look at it.
Now I fully appreciate that some of these reforms, reducing the number of super accounts, changing the cost structure of funds' fees via My Super – I fully recognise that implementing these necessary reforms will eat into the revenue of many funds.
Earlier this week AustralianSuper pointed out publicly that at their fund about 60 percent of accounts are active and a cull of the inactive 40 percent would be well and truly felt by their administrators.
Now as their CEO said: "The bigger you are the easier you can cope with that."
We in Government recognise that and will work with the entire industry to ensure reforms like SuperStream and MySuper are implemented as smoothly as possible.
But as an industry I would urge you to appreciate is our superannuation reform agenda holistically, rather than pick on certain items of reform in isolation.
The simple reality is that upping the SG rate to 12 percent is a huge boon for the industry. It's one absolutely founded in good public policy, but there's no denying it will benefit your businesses enormously.
So I am here to emphatically tell you today that it's not money for jam.
You can't expect us to keep spreading your toast for no return and that return comes in the form of genuine reform.
Give us an incentive, just as we are giving you one. Work with us on this.
We will keep pushing the policy but there's two sides to the coin.
Those genuine reforms that we all know need to be made – they need to actually be made. We've come to the party by putting more money in your pot on behalf of everyday Australians.
Your role is two-fold; firstly to use your skills and expertise to give those Australians the best possible return on their money. Not my money, not your money, Their money.
Because when we do that more and more people – and hopefully at an even younger age – will get even more interested in superannuation as an investment. And that's a win-win-win for everyone.
The second part of your role is to work with us, partner with us…because the more you do that in a genuine way, the more we are able to keep filling the pot and creating the long term productivity and prosperity outcomes that everyone wants and needs.
I'd phrase it like this: 'give a little – get a lot'. It's up to you.
If 12 percent is indeed delivered, as we intend, the size of your funds management pie is about to get a hell of a lot bigger.
So in return I think it is only fair that the industry comes to the party on the other reforms. Steps back from instinctive reactions about how fewer accounts or reduced fees might affect your fund directly, and using a wider angle lens look to assess your response to what we're proposing to do from a national interest – and retirees interest – perspective.
Less politics more consensus
In doing this let's take the suffocating politics out of super...
....some of the bickering, the industry navel gazing and insularity. The Monty Python like comedy of factions in superannuation.
I firmly think a great opportunity lies before us to put super where it belongs – on the pedestal of national esteem shared by the old age pension, Medicare and Barossa Valley reds.
On 10 May of this year, the five leading bodies of Australia's superannuation industry called for bipartisan support.
This was the call of the Australian Institute of Superannuation Trustees... the Industry Super Network... the Financial Services Council... the Self Managed Superannuation Funds Professionals Association of Australia and, of course, the Association of Superannuation Funds of Australia.
But the industry does need to talk less to itself and talk more to the Australian public.
When it comes to the 12 percent question, what we need now is to communicate a get on board message to all Australians and their legislators.
To the Parliament's crossbenchers and their constituents.
'Get on board' - help deliver 12 percent compulsory superannuation – this needs to not just become a catch cry of the responsible Minister.
The way forward is clear.
The superannuation industry, the wider financial services industry, and workers themselves, have all shown their support for the proposed Superannuation Guarantee increase.
I am calling on the superannuation industry to build on the consensus that our soon to retire friends and family and our yet to be even born children and grandchildren – a consensus they need us to build now.
I trust I have your support as we move forward.
Once again, thank you for inviting me to speak with you today.